New Zealand's Weakening Job Market - What it Means for Markets and Policy

New Zealand's job market showed continued signs of strain in Q4 2024, with rising unemployment, easing wage growth, and overall cooling labour demand. Here's a deeper look at the latest figures and their implications.

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Policy and Market Implications

1. Slowing Wage Growth and Participation Rate Trends

• Wage growth has also eased in the past two quarters. While the fall in the participation rate suggests a slight tightening in the labour supply, it could also reflect weakness of the labour market; more people are leaving the workforce in search of better opportunities elsewhere.

2. Labour Demand Weakens Amid Economic Downturn

• The latest data for Q4 2024 reveals a clear trend of a softening job market. As the economy grappled with a sharp downturn—reflected by a 1.5% year-on-year dip in GDP in Q3—labour demand faltered. Employment declined by 0.1% quarter-on-quarter in Q4, contributing to a continued decline in three of the last four quarters.

3. Rising Unemployment: A Four-Year High

• The cooling economy and weak labour demand have pushed the unemployment rate at its highest since 2016, up to 5.1% in Q4. This represents a 1.9 percentage point increase from the rate’s lowest level, putting it just 0.1 percentage points below the peak seen during the COVID-19 pandemic.

Market Outlook and Risks

Rising unemployment, weakened labour demand, and slower wage growth highlights that looser monetary policy is needed. It paves the way for the central bank to implement another substantial rate cut in February.